The New York Times' David Leonhardt posted this rather remarkable chart the other day, pointing to two countervailing economic forces: the public sector and the private sector. In the image, the blue line shows government growth, while the red line reflects growth among businesses.
The New York Times
The chart paints quite a picture. As the severity of the Great Recession took its toll in 2008 and 2009, private-sector growth simply collapsed, though it's clearly recovered since. But also note that blue line -- as local, state, and federal officials have cut spending, public-sector growth has fallen.
The result is a problematic dynamic that's entirely avoidable: we're trying a stimulus and a counter-stimulus in response to the same economic conditions. As Leonhardt explained:
The private sector began to recover in 2009. The recovery slowed in 2010 and again in 2011, as the dips in the red line show. But by the end of last year, the private sector was expanding at a healthy 4.5 percent annualized pace.
Why, then, wasn't economic growth in the most recent quarter better than the 2.8 percent that the Commerce Department reported today?
Because the economy is the combination of the private and public sectors. The public sector has been shrinking for the last year and a half — mostly because of cuts in state and local government, with some federal cuts, especially to the military, playing a role as well. In the fourth quarter, government shrank at an annual rate of 4.5 percent.
Over the last two years, the private sector grew at an average annual rate of 3.2 percent, while the government shrank at an annual rate of 1.4 percent. The combined result has been economic growth of 2.3 percent.
If Americans wanted stronger economic growth, they needed to elect policymakers who'd pursue fewer spending cuts.
Indeed, the frustrating aspect to this is how preventable the problem is. The spending cuts that serve as a drag on the economy aren't at all necessary -- on the contrary, they're easily avoided through federal action. It's why nearly a third of the Recovery Act went to state aid to prevent public-sector cuts and layoffs. But as the stimulus came and went, so too did the benefit.
Federal officials could do this again -- funds to prevent layoffs among teachers and first responders were part of the American Jobs Act -- but congressional Republicans oppose such efforts, and have argued public-sector contraction is ultimately good for the economy, even if it leaves more workers unemployed and holds back growth.
With all of the economic problems policymakers can't control, this is one problem Congress knows exactly how to prevent. It just chooses not to.
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I'm going to vote for President Obama, but this chart could also be summed up in one line from another perspective. Had President Obama not agreed to federal employment cuts as readily as he did, unemployment numbers wouldn't be as bad as they are.
Who's to blame for that?
Bohner, McConnell, and Cantor are responsible.
Look what happened when Obama tried to pay the bills.
There is now no question that the American economy has been shredded by the forces of austerity. The anti-growth agenda of the Republican Party has killed millions of jobs an stalled the recovery. We will not become prosperous again until these inept lawmakers are sent packing. The American Dream has been grievously wounded thanks to political pandering to the corporate elite and a disregard for the ordinary worker Americans that drive our country. http://www.sunstateactivist.org
A one time government stimulus does not produce long term job growth. Get government out of the way and the private sector grows...just like the chart shows.
Read the artical again. We need both sectors.
#1 - Apparently, contessa61 you don't know how to read charts.
#2 - When you get rid of a government operation, say a post office, LOTS of local businesses suffer.
#3 - A government stimulus is NOT intended to produce long term job growth.
#4 - You are aware that folks such as Reagan used government spending to get rid of HIS recession? (Of course not, FOX hasn't told you that, have you.)
Get government out of the way and the private sector grows...just like Somalia!
Contessa - do you understand that unemployment gets better when people get jobs?
http://mjperry.blogspot.com/2011/12/chart-of-day-govt-spending-vs.html
Good chart
What appears to be missing in both the article and many comments is employment, especially in the public sector, is just one part of the issue many states are facing. Yes, a fed stimulus may save or create jobs in the short term. But, to solve the state's long term budget issues, they must resolve their long term costs of employment..
In the past, many municipalities solved their budget problems by offering employees lower increases in return for attractive benefits. Another way they balanced budgets was by deferring contributions to pension funds. Now, they are facing the true costs of those decisions.
Hey Steve! CHARTS...gotta love 'em. Yes, this is a problem when elected officials determine by their 'beliefs' that they are economists. Nice to see you posting again! We've MISSED you for two days!
Perhaps the private sector is growing becasue the public sector is becoming a little more fiscally sane.
We need to elect policymakers who pursue more spending cuts. A smaller government makes for a better economy.
Prove it!
Public sector grows when demand increases. Lower taxes will give a company a chance to grow, but if there isn't demand, growing is not fiscally wise. Companies don't hire people because they can afford to, they hire people because it will increase profits more than the costs associated with increasing their workforce.
Government employees pay for dinner, buy cars, and otherwise spend money just like anyone else. Decreasing the number of employed people decreases demand and will reduce the drive to employ people in the private sector. That is why recessions are often a downward spiral. As people lose their jobs, they buy less, so companies need to produce less, and lay people off, making the initial problem worse. If the public sector didn't push in the opposite direction of the private sector, it would make recessions worse, instead of keeping demand up long enough for the private sector to rebound. The time for austerity measures and cutting of spending is, ironically, when the economy is doing well.
Sorry, Contessa, but there has not been an instance since the start of the 20th century (and we're in the 2st) where a smaller government made for a better economy. We are living through a vivid example of this when massive cuts in government regulation of banks and the financial sector led to a monumental collapse of everything.
Sadly, your trying to enlighten a Kool-Aid Repuglican who doesn't think for himself and relies only on baseless "talking points".
Government spending is revenue neutral from an economic standpoint.
Tax revenue is spent on the same kinds of things consumers purchase, including labor.
It makes no difference from an economic standpoint if stimulus does or does not use tax revenue.
There is no university level argument to refute that statement.
There is no way to deny that consumer demand creates jobs, and there is no way to deny that government spending is a form of consumer demand.
Hopefully we will Nov 2012.
History proves it. How diod we recover from the depression? I believe there was a lot of Gov't spending involved.
Contessa (the same one who writes so prolifically on the AZCentral message boards, perhaps?), your thesis is that cutting government spending will cause an more-than-equal growth in the private sector.
Right?
As it happens, Prime Minister David Cameron agrees with you. How's that working in Great Britain?
Anyone with even the slightest bit of economic savvy has known for a long time - as in since the onset of the Lesser Depression - that we are in a situation where the federal government must be the buyer and employer of last resort. With federal debt at less than 25% of GDP and shrinking, and state and local governments hamstrung by a combination of a decline in tax revenue, mean-spirited Republican governors hell-bent on cutting corporate taxes rather than in helping people, and a growing demand for services from the jobless, the poor, the sick and children, there is an enormous need for Washington to start spending huge amounts of money. In my own state, I can think of at least a half-dozen major infrastructure projects on which work could start next week if Congress provided the funding, and there are many, many schools that need modernizing.
Instead, we are faced with a GOP that is more interested in its ideology and in blocking a president than in helping an America that desperately needs it.
Ryan Alarie--That's one of the BEST explanations I've seen of our economic mess. I hope you post this in many other places as appropriate.
Glas you're here, Steve! Your charts are terrific.
I thought Obama did the pay freeze for government employees to ward off the envy of them that the GOP tried to (and has successfully) to stir up against them. We needs thousands more teachers but no, states have been laying them off by the thousands. It's ridiculous.
He did put a pay freeze in initially but that was lifted a couple of months ago. They received a (too modest, IMHO) increase just recently.
Sabotoged by the republicans who willingly sacrifice American jobs to make Obama look bad. Sorry guys but America (well the non-tea party america) can read. We know the right winged zealots are trying to kill public education and are even now putting teachers in place that plan ro convert our children into the GOP. Guess what? The truth is still out there for them to see and brother when they see how they were lied to are they going to get mad.
This goes beyond people that work for the government. State governments are freezing or cutting their budgets and that includes building roads and infrastructure. This slowdown in building and repairs ripple through the economy because the private contractors and their employees cannot spend money they don't have. That means the workers money goes to paying bills and not goods and services. The ripple effect is the same as the housing industry; it goes beyond the direct effect on tradesman and contractors. The slowdown in spending affects every industry directly related to home construction such as furniture and appliances. Until a lot of people are put back to work, there is not enough money from discretionary spending that is circulating in the economy.
Myopically focused like a laser beam on destroying President Obama's reelection, our Republican friends and loved ones have lost sight of what makes America the greatest nations on earth:
Equality of opportunity, access, and before the law to ensure a just way of accepting unequal outcomes is the foundation of our American way of life!
Yes, our Republican brethren are more than entitled to grow wealth, but simply because they were wildly successful and have since hired lobbyists to persuade our law makers to skew our tax policies in their favor, they have no right to condemn anyone who undertakes an effort to bring tax policies into the domain of fair application as unAmerican - but alas, when one's side has no valid or legitimate arguments to make, pull the unAmerican card as the last resort!
And there's where we are - the Republicans got nothing, cept division and conquer rhetoric! -Kevo
This is what happens when you say government doesn't work and then do everything to ensure that government doesn't work.
The GOP is doing everything their leader Grover "Drown Government in a Bathtub" Norquist tells them to prove to everyone that government doesn't work.
My question is why do Americans elect people who don't believe in government TO the government?
It seems this article completely ignored the fact that the US has a finite amount of wealth, and that deficits at some point will have to be paid back.
Hey mhr83 do you have a basic understanding of macro economics? Your terse post above seems to belie any such understanding! -Kevo
mhr83, ever heard of "printing presses"?
Or, and I know this is a foreign concept to any Republican/troll, "economic expansion"?